Dollar Soars Against Yen on Expectations for Rate Increase

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TOKYO--The dollar soared against the yen Monday on expectations for a U.S. Federal Reserve rate increase and fiscal stimulus by President-elect Donald Trump.

The dollar was at 111.08 as of 0450 GMT, compared with Y110.90 late Friday in New York. The dollar rose as high as 111.18 in afternoon Tokyo trading, the highest level since May 31.

Investors locked in expectations of a U.S. rate increase and bought the dollar and sold the yen based on comments by New York Federal Reserve President William Dudley on Friday, analysts said. He said inflation expectations were "well-anchored."

"Even though investors are concerned about a sharp rate rise and inflation expectation, market participants almost fully expect rate hike action, so it's quite natural that exchange and interest rates are being affected," said Yunosuke Ikeda, FX strategist with Nomura Securities in Tokyo.

Japanese institutional investors weren't part of the dollar rally, as they are uncomfortable with the uncertainty generated by Donald Trump's win, Mr. Ikeda said. "It's a kind of market consensus that Trump means uncertainty, and Japanese investors don't like uncertainty," he said. They were waiting for any dip going forward and will buy on dip demand.

Foreign investors were driving the dollar rally against the yen. As short-term speculative players, they were taking advantage of the sharp rise in U.S. interest rates, while Japanese interest rates remain anchored by the Bank of Japan. "Yen is the most comfortable currency to sell against the dollar because yields are rising everywhere but here," Mr. Ikeda said.

The USD/JPY shrugged off a mixed bag of Japanese economic data that showed on one hand that exports were down, though overall the economy was doing much better. Figures released Monday by the Ministry of Finance showed that the country's exports fell 10.3% in October from a year earlier, coming in worse than a 9.4% drop forecast by economists polled by The Wall Street Journal. Yet exports were stronger than in previous three months. A weaker yen that has followed in the wake of Mr. Trump's election should aid big Japanese exporters by lowering prices of Japanese goods in other currencies and raising profit. Meanwhile, Japan's economy grew 2.2% on an annualized basis in the most recent quarter, beating economist expectations.

The British pound was at $1.2338, compared with $1.2347. The euro was at $1.0596 versus $1.0592.